17 July 2010

Nudge: Improving Decisions About Health, Wealth, and Happiness

I think of Nudge (by Richard Thaler and Cass Sunstein) as the "applied" version of Predictably Irrational. While Predictably Irrational was primarily about what makes people tick and about various classes of cognitive failures, Nudge goes more in depth into how we can design policies and institutions that counteract some of those those biases (something PI touches on, but only briefly). In that way the two books are quite complementary.

The core of the book focuses on case studies of policies and experiments in a few areas, for example, retirement planning, credit, and healthcare plans. Some of the important takeaways for me:

In order for people to make good decisions, they need relevant data about the alternatives, e.g. "What is the present discounted cost of this mortgage?"

People quickly learn how to make good decisions when they get accurate and timely feedback on recent decisions. (Unfortunately, none of life's big choices fit that criterion.)

Institutional planners can make a huge impact by choosing good defaults.

The authors advocate a theory of libertarian paternalism, which I agree with to an extent. They make the case that good institutional design can ameliorate many situations where our innate biases are especially likely to be self-destructive. But the ideas proposed in the last few chapters of Nudge (example topics: privatizing marriage, allowing patients to sign away the right to sue for malpractice) do not seem to have this property at all. Instead they seem to have sprouted from a general desire for libertarian policies. Which is not to say they are bad ideas (I think many of them are good, in fact), but I don't think they add much to the core thesis of Nudge.

Disclosure

I'm a software engineer at DNAnexus, Inc. This blog represents the opinion of myself and no one else.Unless specifically noted otherwise, I do not receive free review copies of books or other products mentioned here.